Cherokee Acquisitions, a bankruptcy-focused investment company, has begun offering “put options” for crypto investors in order to protect their crypto funds on Binance, Coinbase, and Kraken in case of bankruptcy, CoinDesk was informed Wednesday by the company.
The put options protect account holders’ deposit on listed exchanges and pay back 100% of assets if the exchange files bankruptcy protection within the contract term.
Hedge funds and large institutional investors will buy the options and compensate investors in bankruptcy filings, Brian Ferrara (sourcing and trading specialist at Cherokee) told CoinDesk.
The options have monthly fees of 0.25 to 0.35% for Coinbase funds, 0.35 to 0.45% Kraken, 0.45 to 0.45% Binance Holdings Ltd and 0.45% to 0.5% Binance Holdings Ltd. This was stated by the firm in an email sent to investors that CoinDesk reviewed.
Cherokee Acquisition is an investment bank that specializes in distressed assets. They also offer a marketplace to help customers file credit claims against banksrupt companies. They have been active in structuring deals and purchasing customer claims to their crypto holdings against embattled cryptocurrency firms like Voyager Digital, Celsius Network, and FTX.
This new offering is coming as several digital asset companies have filed for bankruptcy protection in the past year. The filings freeze withdrawals and lock up investors’ holdings. Crypto traders began to worry about the stability and security of centralized exchanges after the November collapse of FTX (the exchange of Sam Bankman-Fried), a disgraced entrepreneur. They began withdrawing funds as fear grew.
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Cherokee states that the pricing of options is an estimate using the firm’s proprietary formula for a six-month contract. It should not be taken as a definitive price and should only be used “as a starting point between buyer and seller.”
A Binance account holder who has a balance of $1,000,000 and wants protection can buy a put option for $27,000-$33,000 upfront, based on the monthly rates. The seller would have to purchase the account holder’s valid bankruptcy claim if the firm files bankruptcy within the contract term.